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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    Originally posted by gandabaccha View Post
    7-10 years to aapne kam bol diya.
    Yes could be. If we see cheap credit flows then the bubble could go on for a longer time. Plus if the land laws are not changed then supply of land will not keep up with demand and will also cause prices to go up.

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    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by wiseman View Post
      Folks,

      I thought long and hard about the past 5 years and what could be different in terms of markets response to an economic crisis from earlier times when having a bath (note that the most revolutionary ideas come in a flash of revelation when having bath - almost as if the water cleans away the cobwebs in the brain and lets the light of wisdom shine through!

      Well, here is the new crash model that I think is working this time ...

      Earlier days Govts had some kind of limits to the extent to which they would abuse their pwn rules that have stood the test of time for many 1000s of years. It started with Japan in 1990 (when the US told them that what they were doing was very dangerous), spread to US in 2008 (when the US did exactly the same thing as the Japanese!), spread to China almost at the same time (with smaller doses of the same poison taken by all other countries like India) and is now is now spreading to Europe and who knows where else.

      Ben Bernanke with his famous "Helicopter" quote summarised the phenomenon back in early 2000s.

      Old Model
      ----------
      Back in the old days when sound money policies were followed, Govts would not cross the limit in creating more money supply (cash/credit) than was backed by assets and this would automatically throttle the economy by allowing excessive booms to be followed quickly by crashes which would wipe out the perpetrators of the boom and the next boom cycle would follow. In fact in the control economy upto 80s there were no major boom-bust cycles at all!!! Can you imagine that, you youngsters? What a strange world!!!

      In the case of RE, the Govt scam of supporting builders as well as buyers with artificially low-interest loans for extended periods of time allowed prices to be raised much higher than was affordable, which continues to this day. Creating a situation where people have uniformly come to believe that ...

      1. RE prices can never fall
      2. RE is a great investment and gives the maximum returns

      Safest and highest return ... by Govt bailouts and support (something you saw during the Soviet era and are now seeing with Obama and increasingly with other Govts).

      First RE Crash (1995-98)
      ------------------------
      So when the first RE boom occured back in the 1991-95 period, coincident with the 1991 Reforms and early boom time, as usual prices went way ahead of reality with people believing that speculating in RE (10% down and double your money when you sell out within 6 months when the next installment came) was a "sure" way to double your money.

      Then suddenly 3 things happened simultaneously. Builders built way too many properties, prices inexplicably stagnated and banks started tightening. Even without there being job losses, the crash started and as incredulous speculators ("they told me guaranteed price will double in 6 months?!") saw their margins being wiped out they started selling out in distress and we saw prices in most bubbly areas come down as much as 80%. As is the case in RE, first volumes saw crash upto 95% in these areas and then when liquidity became extremely thin the strongest holdouts came to market in distress and in a market with no buyers an banks repossessing bigtime, prices took a serious tumble.

      Inferences
      -----------
      1. Whenever there is a financial bubble in ANY asset class, it will crash, wipe out speculators and weak hands and after they are wiped out, it will bottom and start the next bubble cycle again.

      2. Due to excessive interference by Govt, there will be excessive speculation in any bubbly asset class which WILL create a bubble-bust cycle. This is the NEW NORMAL cyclicity in markets under new Crony/Govt "Capitalism" model today.

      As with all crashes, volumes will crash FIRST as buyers find even the Govt/Bank propped system way too expensive to buy (or from another angle, lose their appetite to buy) and after a certain amount of time which kills speculators ability to hold out, prices will decline when the same "spent" speculators come to market in distress when prices will spiral sharply down ending with the price bottom (not necessarily time bottom).

      New Model
      ----------
      The US (greatest Financial criminal enterprise of all time) has now changed the scope of the game by invoking the slow-burning-fuse Financial Nuclear option --- Print without any control so long as that can keep the system awash with liquidity and prevent it from collapsing in the near term (note carefully the use of the word "near").

      The new model thus changes the old model in the following ways ...

      1. Govts/Banks will prop up the bubbly asset far longer and to a far greater extent than under the old norms of fiscal prudence. This is seen by

      a. The continued extent of RE support at least from 2009 (when Govt/Banks warned builders to clear out inventory by reducing prices thus the excess support is at least 3+ years old, where the old support was just for a few months)
      b. The extent of support 1.2L crores in loans which are widely being "re-structured" (to continue to hide NPAs, which automatically hints are excessive support)

      This model is the SINGLE MOST IMPORTANT reason why RE has not crashed yet (if you chose, you could include black money into the equation (which could be an important contributor), but I had stated earlier that Black Money is not the cause of this bubble, only and extender, in my opinion.

      Second RE Crash (201?-20??)
      -----------------------------
      The following events/actions will see the rollout of the Second RE crash in modern India.

      1. Massively excessive support by Govts/Banks taking builder's losses onto their books and bailing them out by "re-structuring"

      2. Most importantly, external pressures on trade (exports specially), when trade partners (mainly formerly rich Western countries now turned poor) lose their enthusiasm for excessive consumption of all goods and services.

      3. Extended Economic slowdown with attendant job losses on a large scale

      4. Massively excessive money-generation (cash/credit) by Govts/Banks leading to extended high inflation in the economy

      5. Collapse of current monetary expansionary model when aam janta loses appetite for more borrowing and spending

      As we see today 1 has already happened and Govt is seriously stepping on builders toes because the nearly out-of-control fiscal situation in the economy (deficits) threaten to go out of control and this will force RBI to dig in their heels and force a crisis.

      2 is happening in all major economic regions of the world and the uniform reaction is QE on an even more massive scale than in 2008. I believe this would be the last one before QEs lose their power entirely (even this would lose steam quickly as most people are aware of the long term impact of QE on their jobs and the economy)

      3 has just started with "decade-low" growth scenarios emerging and this will continue (perhaps even worsen) when our trading partners get into deeper sh**. This is the immediate future scenario

      4 is an automatic reaction by our Govt and we will continue to see extended high inflation and perhaps even higher inflation in certain essentials like food

      I don't precisely know when job losses will become serious and when point 5 will actually happen in a big way. I think 5 will be followed by job losses.

      Eventually, with the withdrawal of excessive and massive Govt/Bank support of RE and simultaneous loss of holding power due to job losses as well as "leveraged RE" just becoming a huge rock around people's necks (when their prices stagnate/decline for a while), the RE forever upward shine will wear off this asset class and we should see RE come down to being just another asset class with the same boom-bust characteristics as the rest.

      I think 2, 3 and 4 will happen in the 2013 timeframe (even early 2014) and the rest will follow soon enough.

      Till then, I'm sure I will continue to be beaten up about my "failed" detailing of this crisis, but then, as I've said before, that has never stopped me from posting and it has also never stopped the events from happening!

      cheers
      From a post made about a year ago:

      2003 was a slow year

      2004 was the year of new launches

      2005 was the year of resale purchase absorption

      2006 was the year of price increases

      2007 was the year of massive price escalation in resale

      2008 was the year of crash

      2009 was the year of slow sales

      2010 was the year of runaway price increase

      2011 was the year of new launches

      2012 will be the year of price stagnation and fall (Did this year old prediction come true? Not quite, but close enough - Mumbai stagnant, Pune and GGN stagnant for last 4 months or so)

      2013 will be the year of resale purchase absorption

      2014 will be the next round of runaway price increase

      2015 might be the next bull phase massive price increases, in new and resale, similar to 2006-7.

      Assuming the 7-8 year RE cycle seen all over the world repeats itself here

      Re: Compuwala,

      Bears are like the boy who cry wolf - they keep on screaming crash crash. And like a broken clock, they will be right some time or other.

      I wrote this in beginning of 2011 in this same thread (page 366): Bears scream crash crash:


      If you look at RE market in last 3 years, it has been following the textbook pattern of a 7-8 year cycle.

      2007 flat prices peaked (previous cycle). Assume imaginary index for RE(IMex)=100

      2008 prices crashed IMex =80 (Bears scream crash crash)

      2009 RE firms got into debt trouble and there were distress sale of plots (Vatika plots GGN) and flats (Unitech Uniworld gardens 2 GGN). Many affordable flats were released. Imex = 70. (Bears keep screaming crash crash although crash is already over)

      2010 Prices stabilised and went back to peak 2008 levels. IMex=100
      (Bears scream crash crash - since prices are rising, they say crash is imminent)

      2011 Prices stabilised, fresh inventory being continuously sold. Imex = 130
      (Bears scream crash crash - just more imminent)
      If we have a normal cycle, then we can expect:

      2011: stable prices for rest of the year, rates reach peak of BAse rate 10%. IMex=130 (Bears scream crash crash continuously, always around the corner) (Did this prediction come true, made a year ago? - we did have stagnant prices for most of 2011 except that prices jumped from Nov 2011 to Feb 2012 or so)

      2012: Decline in sales, end of industrial cycle upmove, poor economic performance. Lowering of rates by end of 2012, Bank base rates 8%. IMex= 100(Bears scream crash crash and say - I told you so!!!!) (Did this prediction come true? - seems to be a mild correction in some local markets, others are seeing appreciation)

      2013: Delivery of inventory initial pipeline coincides with lower rates, good resale with loan possibility, industrial cycle starts upmove. Base rate 7%, IMEX= 140. (Bears scream crash crash - prices are not sustainable)

      2014: Good stock market performance, good economic performance and good RE price upmove coincides (for residential and commercial and real estate RE). Nifty 10,000, IMEx 250, Base Rate 6%. (Bears scream crash crash - more imminent)

      2015: Massive performance by nifty and real estate. Nifty 14000, IMEx 400, Base Rate 6% (Bears scream crash crash - but many people start to doubt the bears - they have cried wolf for 7 long years. By end of 2015 everyone decides it is stupid to stay out of RE market, because it keeps rising - so they all go and buy. Bears scream crash crash but no-one listened because they have been screaming this always)

      2016: Continued delivery of flats results in massive oversupply, Real estate crashes. Massive inflation causes Rates jacked up to Base rate 12%. Currency crashes. Nifty Crashes to 9000 levels from 15000. IMEX crashes to 250 levels from 500. (Bears scream crash crash - I told you so!!!!!! - but poor suckers lose all their money, having timed their entry all wrong - they swear off real estate and stocks for ever

      2017: Indistrial and RE cycle starts all over again.


      Thats how things happen over and over again. Always has and always will.

      Guy buying Nifty 5000 and exiting at 15000 makes massive profits. Guy buying at Nifty 6000 and remaining invested makes 50% in 2016 when markets crash to 9000 levels.

      Guy buying IMEX 70 and exiting IMEX 500 makes massive profits. Guy buying IMEX 100 and remaining invested, makes 150% when IMEX crashes to 250 levels.

      That is the way of this world. Those who understand cycles time entry and exit properly.
      Last edited by Venkytalks; September 3 2012, 04:15 PM.
      Venky (Please read watch a or before posting)

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Hello Seniors,

        with all these advice, what would be right thing to do right now with the money saved for the Down Payment ?
        Keep it in the bank a/c ??

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          There were reasons for a sharp recovery after 2009.

          i) Builders were bailed out by banks as debt was rolled over.
          But if this time banks try to do this; then they are on the path to bankruptcy.

          ii) Stimulus by Indian govt.; this is highly unlikely now for two reasons -:
          a) Indian govt. is running a huge fiscal deficit.
          b) Elections are coming ; so money would be used to introduce some pro poor popular schemes rather than to save industry.

          iii) massive QE across the world.
          Now some of this money may trickle to India but the political and policy uncertainty is driving out investors.
          Last edited by manu; September 3 2012, 04:37 PM.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by Venkytalks View Post
            From a post made about a year ago:

            2003 was a slow year

            2004 was the year of new launches

            2005 was the year of resale purchase absorption

            2006 was the year of price increases

            2007 was the year of massive price escalation in resale

            2008 was the year of crash

            2009 was the year of slow sales

            2010 was the year of runaway price increase

            2011 was the year of new launches

            2012 will be the year of price stagnation and fall (Did this year old prediction come true? Not quite, but close enough - Mumbai stagnant, Pune and GGN stagnant for last 4 months or so)

            2013 will be the year of resale purchase absorption

            2014 will be the next round of runaway price increase

            2015 might be the next bull phase massive price increases, in new and resale, similar to 2006-7.

            Assuming the 7-8 year RE cycle seen all over the world repeats itself here

            Re: Compuwala,

            Bears are like the boy who cry wolf - they keep on screaming crash crash. And like a broken clock, they will be right some time or other.

            I wrote this in beginning of 2011 in this same thread (page 366): Bears scream crash crash:


            If you look at RE market in last 3 years, it has been following the textbook pattern of a 7-8 year cycle.

            2007 flat prices peaked (previous cycle). Assume imaginary index for RE(IMex)=100

            2008 prices crashed IMex =80 (Bears scream crash crash)

            2009 RE firms got into debt trouble and there were distress sale of plots (Vatika plots GGN) and flats (Unitech Uniworld gardens 2 GGN). Many affordable flats were released. Imex = 70. (Bears keep screaming crash crash although crash is already over)

            2010 Prices stabilised and went back to peak 2008 levels. IMex=100
            (Bears scream crash crash - since prices are rising, they say crash is imminent)

            2011 Prices stabilised, fresh inventory being continuously sold. Imex = 130
            (Bears scream crash crash - just more imminent)
            If we have a normal cycle, then we can expect:

            2011: stable prices for rest of the year, rates reach peak of BAse rate 10%. IMex=130 (Bears scream crash crash continuously, always around the corner) (Did this prediction come true, made a year ago? - we did have stagnant prices for most of 2011 except that prices jumped from Nov 2011 to Feb 2012 or so)

            2012: Decline in sales, end of industrial cycle upmove, poor economic performance. Lowering of rates by end of 2012, Bank base rates 8%. IMex= 100(Bears scream crash crash and say - I told you so!!!!) (Did this prediction come true? - seems to be a mild correction in some local markets, others are seeing appreciation)

            2013: Delivery of inventory initial pipeline coincides with lower rates, good resale with loan possibility, industrial cycle starts upmove. Base rate 7%, IMEX= 140. (Bears scream crash crash - prices are not sustainable)

            2014: Good stock market performance, good economic performance and good RE price upmove coincides (for residential and commercial and real estate RE). Nifty 10,000, IMEx 250, Base Rate 6%. (Bears scream crash crash - more imminent)

            2015: Massive performance by nifty and real estate. Nifty 14000, IMEx 400, Base Rate 6% (Bears scream crash crash - but many people start to doubt the bears - they have cried wolf for 7 long years. By end of 2015 everyone decides it is stupid to stay out of RE market, because it keeps rising - so they all go and buy. Bears scream crash crash but no-one listened because they have been screaming this always)

            2016: Continued delivery of flats results in massive oversupply, Real estate crashes. Massive inflation causes Rates jacked up to Base rate 12%. Currency crashes. Nifty Crashes to 9000 levels from 15000. IMEX crashes to 250 levels from 500. (Bears scream crash crash - I told you so!!!!!! - but poor suckers lose all their money, having timed their entry all wrong - they swear off real estate and stocks for ever

            2017: Indistrial and RE cycle starts all over again.


            Thats how things happen over and over again. Always has and always will.

            Guy buying Nifty 5000 and exiting at 15000 makes massive profits. Guy buying at Nifty 6000 and remaining invested makes 50% in 2016 when markets crash to 9000 levels.

            Guy buying IMEX 70 and exiting IMEX 500 makes massive profits. Guy buying IMEX 100 and remaining invested, makes 150% when IMEX crashes to 250 levels.

            That is the way of this world. Those who understand cycles time entry and exit properly.


            Since u understood everything so properly why had u not made money .
            still need to learn more...
            Last edited by gandabaccha; September 3 2012, 04:34 PM.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Clarification ...

              I think a lot of people believe I'm talking about a US style crash in Indian RE and economy.

              Sorry, I'm talking about the 1995-98 style of decline which will give us decent prices to get into RE. My main aim in all investments is, "buy at the lowest price possible to minimise losses, even if it is only on books, since you never know when you may have to sell in distress for some other purpose".

              Thus I view all asset purchases (whether for own use or for speculation) as ultimately an asset that needs to be liquid as well as have market value greater than purchase price. Thus the premium on lowest entry price.

              India is still on growth mode and demand for everything is only growing (though I believe growth rates used today is unviable in long term). So RE will give up excess price obtained in too short a time and continue march upward (mean reversal).

              We sold some RE in March 2012 and hold some (the 50:50 rule).

              cheers

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by gandabaccha View Post
                Since u understood everything so properly why had u not made money .
                still need to learn more...
                It is just a prediction gandabaccha.... It cannot be linked with someone's gains or losses..

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by KailashSingh View Post
                  Hello Seniors,

                  with all these advice, what would be right thing to do right now with the money saved for the Down Payment ?
                  Keep it in the bank a/c ??
                  If you want to buy for end use ... do go ahead with very sound due diligence. If it is for investment ... location, location, location should be your mantra. Just dont put your money randomly in RE and expect it to blossom.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    where did my post go ?

                    anyways ....

                    as stated previously i find it funny that ex-weather wanes have now become predictors !

                    especially funny are these 5/10/20/100 year predictions !

                    we have 5 year plans we know what happens, we now have folks making predictions for in multiples !

                    freaking unbelievable !

                    bas karta hun bhai beginning to run out of exclamation marks.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      while Bulls and Bears continue to discuss, our politicians manage to create a mother of all scandals estimated at 48 lakh crore, this should be good news for Pune Investors as some of that money is heading to RE


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